Mortgage rates, March 20
It's funny how mortgage rates move. A few weeks ago when rates were about a half point less on an adjustable rate loan (ARM), I was asking a client why they were going to finance with a 30 year fixed rate loan when they absolutely, positively were not going to be in their home for more than 5 years so why would they pay a higher rate just for the security of a fixed rate loan product.
Basically, they weren't comfortable with the idea of an ARM especially in light of all the media coverage of how bad ARM's were. That's fairly understandable because real estate buyers don't watch or understand the mortgage market as carefully as real estate and mortgage professionals.
Fast forward to today. Believe it or not, 30 year fixed rate loans now have a lower rate than 5 and 7 year ARMs. So anyone who is only planning to be in their home for either 5 or 7 years will not benefit from the usually lower rates associated with a shorter term mortgage product.
Keep in mind, all ARMs are not bad mortgage products and there is a time and a place for them for most real estate buyers. We owned a home several years ago and we knew we absolutely were not going to live in that home for more than 3 years so we did the smart thing and took a 5 year ARM at 4% (even giving us a little extra cushion if we did happen to stay a little longer). Actually, we sold after 2 years but you can imagine that our monthly payment was quite a bit lower with the 4% ARM than it might have been with a 30 year fixed rate loan.
And all ARMs do not necessarily reset higher. The rate is locked for the initial period, be it 1, 3, 5, 7 or 10 years or whatever you choose. Then it can reset up or down depending on current interest rates at that time in the future. Additionally, there is a cap on how much it can move at reset, usually 2% per year and no more than 5% over the life of the loan.
In general, I do not recommend any ARM product for a period of less than 3 years and only recommend an ARM if you completely understand the consequences of the loan and know how long you plan to live in the home.
But everyone interested in the Charleston real estate market should take note that interest rates remain very low, averaging below 6% on a 30 year fixed rate loan. And with high inventory levels and lots of very nice Charleston homes for sale to choose from, very advantageous buys can be negotiated.